Musings on Asian macro economic trends and financial markets

Good morning, $/JPY did a final push higher to 109.37 this morning before plunging suddenly to 108.61. Overnight, the higher $/JPY dragging NKY by over 2%, dragged European & U.S. indices higher too by 1%. However, we got to realise that S&P500 & Dow are not representative nor leading indicator of general broad equities anymore with financials like Goldman & Apple dominating price weighted Dow & market-cap weighted S&P500 respectively Why The S&P 500 And Dow Are Misleading Investors . It masked the weak price action across many stocks & prevailing soggy sentiments where on many days past 2 weeks, individual stocks had plunge 10-20% that we have seen in the recent earnings season disappointment in a number of tech & old economy companies. Disney fell 6% on earnings miss (and you wonder even with their nice slew of movies hits) Walt Disney earnings: $1.36 per share, vs expected EPS of $1.40 . Fossil Group also plunged 23% on their miss as well Fossil Group (FOSL) Stock Plummets in After-Hours Trading on Q1 Earnings Miss and we also had a bombshell halt of the supposed US$6 billion Office Depot merger with Staples that saw their shares plunged 26% & 9% respectively Judge halts $6B Staples, Office Depot merger; ODP shares plunge 26% . I suspect we have completed the retracement rally of 3 to 3.5 big figures higher in $/JPY last night/this morning from recent 105.52 lows last week. I have added shorts in $/JPY as mentioned yesterday from 108.71 to 109.30 (*as recommended in establishing shorts at 109 -/+ 30 pips either side). We have the U.K. Manufacturing & Industrial Production figures releases at HK/Singapore 4.30pm that may move GBP & GBP crosses and U.S. DOE Crude Oil Inventories release at 10.30pm that will move oil & the closely correlated stock indices along with it. Good luck!

Good morning, the main mover from Monday that continued on Tuesday in markets was $/JPY that grinded higher first past 107.70 resistance level before reaching 108.50 last night. It continued to 108.83 this morning presumably on further stops triggered on impulsive bad shorts in markets on $/JPY post disappointing 28 April BOJ meeting. $/JPY has a tendency to retrace higher by 3 to 4 big figures after an initial plunge following BOJ or Japan disappointment over the past year. We have seen a rally from 116 back to 119 early this year prior to BOJ meeting where the initial negative rate announcement on 29 January 2016 caused a spike to 121 before plunging to 111 by 11 February. We then retraced higher to 114.87 by 17 February where it chopped around till 29 March falling to 107.7 before rallying back to 111.97 prior to 28 April BOJ meeting & plunge to 105.52 in the latest leg lower. If there is a pattern, we should see $/JPY retracing higher to 109 -/+ 30 pips where these will be great levels to be short $/JPY again. Overnight Brazilian equities & BRL plunged after effort to impeach President Rousseff appeared to hit a roadblock Brazil markets in disarray as Impeachment vote annulled . This might weigh further on EM/Asia bloc as a whole from here as the strong risk rally from February lows for EM/Asia is in question now. Interesting that billionaire investor Carl Icahn has turned net short in equities by 149% in disclosure by his vehicle Icahn Enterprise Icahn net short position of 149% . We can be entering a period soon where they latest popular consensus positions in the market gets shaken out where players have gone long EM/Asia equities & currencies, short U.S. treasuries, long gold and oil, short USD especially against AUD and CAD in G7 space besides EM/Asia .. the recent USD rally is already sign of bad positioning USD jump catches traders short . For the superstitious traders out there, Mercury is in retrograde on Monday 9 May & crossing against the Sun as well which is doubly negative for risk Mercury retrograde . Hang on & good luck!

Good morning, the U.S. employment report out last Friday was decidedly weak in job adds at 160k vs expected 202k in non-farm payroll U.S. employment report but with supposed signs of wage inflation that subsequently drove UST yields higher to 1.79% (10yr) with TYM6 spiking to 131-06+ before plunging lower to 130-14+ closing. U.S. equities recovered from intraday lows as hopes of Fed June meeting on hold rose on this employment report. We should be back to a range trading whippy market swinging from perceived further Central Bank on hold or stimulus hopes to realities of global economic slowdown that doesn’t change with any Central Bank actions. China’s trade figures released over the weekend does point to continued doldrums China trade balance . BOJ minutes out this morning reveals a sharp split over negative rates policy that show fatigue & uncertainty even among the ranks of Central Bankers over their policy ineffectiveness BOJ meeting minutes . For now, sell $/JPY 107.50-108 & buy 106-106.50 on tight gamma trading. S&P500 eminis rebounded from intraday lows on Friday at 2030.5 & should be capped at 2062.5. There’s no fireworks but grinding trading this week perhaps till Fed’s Dudley scheduled speech on Tuesday 10 May, RBNZ Weeler on Wednesday 11 May & Thursday 12 May BOE meeting decision. Good luck!

Good morning, nothing much usually happens just ahead of U.S. employment report but last night, Fed’s James Bullard saw it fit to confuse market with another “Fed undecided on right path for rates” statement! Fed undecided on rate path . U.S. equities continued its gradual slide as the early support from higher WTI crude oil on Canada tar sands fire fizzled out Canada fires drive oil higher . Why should higher oil be better for stocks where humans will scratch their heads but machines algos ramp risk higher on such headlines!? We continue in Asia on further derisking as RBA statement of monetary policy release showed lowered inflation forecasts & readiness to cut rates again RBA lowers inflation forecast & ready to cut again . AUD/USD gapped lower to 0.7400 from 0.7460 post 9.30am (HK/SIN time) release. I am still short equities via S&P500 with eminis put fly, Dow & Eurostoxx50 futures. Short AUD/USD & GBP/USD. Long TYM6 call condor expiry today for maximum payoff if between 131.25 to 131.50 (i.e, 10 year UST 10 bp lower to around 1.66% from current 1.76%). Overshadowed by U.S. employment report might be the equally important Canadian’s employment report too where a weaker number will see USD/CAD higher to 1.3000 from 1.2860 now & oil lower to 43 from 46.35 (Dec16 contract) that I’m short. We’re indeed seeing a classic risk off where USD gains across all G7 and EM/Asia currencies now with sliding equities. I expect KRW & TWD to fall most in Asia where their stock markets had rebounded the most since February lows with government support & belated inflows due to EM ETFs ramp up recommended by various private banks & investment banks just 4 weeks ago.

Good morning, Australia Retail Sales came out this morning slightly better at 0.4% vs 0.3% expected & AUD/USD grinded higher to 0.7490 from 0.7450 lows. It feels like a day of consolidation post U.S. ADP last night which came weaker than expected at 156k vs 205k expected and U.S. stock continued their slow grind lower last night with S&P500, Nasdaq100 & Dow all off by -0.6%. Notable moves in FX seen in GBP/USD that continued to be offered (falling from 1.4555 to 1.4461 intraday lows) on back of weaker than expected U.K. Contruction PMI out at 52 vs expected 54.1. CAD continue to weaken as $/CAD marched higher to 1.2850 (intraday highs 1.2887 higher by 4 big figures in 36 hours!) as Canada Trade Balance worsened out at -3.4 billion deficit vs -1.2 billion expected and U.S. Crude Oil inventories out at 2.8 million vs 0.6 milion expected saw oil prices capped & reversing. Have shorted Dec WTI Oil as signs of the rally squeeze from February lows are over and riding the positive carry contango out the curve. Looks like Saxobank came out with report similar to my view Saxobank warns of crude oil rally over . Ahead of Friday’s U.S. employment report, added a TYM6 call condor 131 / 131.25 / 131.5 / 131.75 expiring tomorrow Friday for maximum payoff if 10-years UST yields fall 10bp lower to around 1.66%. Tight trailing stops to protect profits in short AUD/USD, short GBP/USD with short Dow & Eurostoxx50 futures as it will be a crap shoot at best in guessing outcome of U.S. employment report that algos will drive it violently either way in that short span of time when out.

Good morning, the RBA 25bp cut to 1.75% innocuous as it with AUD/USD plunging from 0.7720 to 0.7490 led to AUD/JPY selling from 81.9 to 79.5 that cascaded & brought on $/JPY & NKY lower. Stops fest (with Japan out on holiday) saw lows of 105.55 touch by 4pm (HK/Sin time) when London came in. Unexpectedly poor UK Manufacturing PMI at 49.2 vs expected 51.3 saw GBP/USD lower from 1.4770 to current 1.4545. The lower NKY led to lower S&P500 eminis (that ignored the weaker China Caixin PMI in Asian morning) & led to weaker DAX & Eurostoxx50 when Europoan session started. WTI crude oil reversed lower by 2% to 43.85 accelerated the U.S. & European equities lower with $/CAD jumping from 1.2460 to 1.2710 presently. Sometimes, when a butterfly flapping its wings can cause a tornado somewhere else in chaos theory … it just points to the randomness in markets exarcerbated by bad positioning with the street long AUD, long equities, long oil, long EM, short GBP, short bonds & short vols especially among the fast money crowd and some of the real money too. Sell in May & go away may have well started!

Good morning, post Mayday holiday in most Asian countries yesterday, we have Japan market close & if there’s a day when speculators wish to test downside in $/JPY with less threat of BOJ intervention, it’s today! 105.38 to 106.20 represent the levels that $/JPY rallied from since Oct 2014 when Abenomics took shape. It should provide support & will not be easy to break convincingly at one go if 101-102 is the final stop in this JPY rally. I’ve already covered shorts in $/JPY & NKY as the gap move lower post disappointing BOJ has brought them to the lower node in the bi-modal price distribution that I’ve previously discussed & risk reward is better in short S&P500, Dow or Eurostoxx50 for that matter. China Caixin Manufacturing PMI came out tad lower than expected at 49.4 & saw Asian equities ticked lower slightly. All eyes on RBA meeting decision at 12.30pm (HK/SIN time) & a rate cut is slightly priced in at 53% odds. Sell AUD on a spike to 0.7750/0.7800 is preferred on no hike or long GBP/AUD cross at 1.8840-1.8950 to ride on the market positioning of elevated GBP shorts (on Brexit fears) & AUD longs (on commodity rally).